Incident: The company announced its 2023 annual results forecast. The company expects to achieve operating income of 10.73 billion yuan - 11.05 billion yuan, a year-on-year increase of 25.8%-29.5%, net profit to mother of 460 million yuan - 570 million yuan, an increase of 186.3% - 206.9% year-on-year, after deducting non-net profit of 460 million yuan to 570 million yuan, an increase of 181.0%-200.4% year on year. In a single quarter, 2023Q4 is expected to achieve operating income of 3.51 billion yuan to 3.83 billion yuan, a year-on-year increase of 26.3% to 37.8%, and net profit to mother of 230 million yuan to 340 million yuan, an increase of 258.6% to 334.5% year-on-year, after deducting non-net profit of 230 million yuan to 340 million yuan, an increase of 259.7% to 336.1% year on year.

Revenue exceeded expectations, and the results turned a loss into a profit. The company's revenue for 2023 is expected to increase by 25.8%-29.5%, and net profit is expected to increase by 990 million yuan to 1.10 billion yuan over the same period last year. In the context of post-epidemic recovery, medical examination demand has recovered as scheduled, and the company's annual revenue has exceeded expectations, turning a loss into a profit. In 2023, the company as a whole entered a healthy operating cycle driven by demand and a sharp rise in volume and price, mainly due to: 1) meeting the growing demand for medical examinations and increasing the proportion of middle and high-end customers; 2) establishing a business system for collaborative development of group examinations and individual inspections; 3) focusing on innovative differentiated products and establishing product advantages and technical barriers; 4) building a digital operation platform to improve service quality; 5) strengthening organizational transformation to achieve cost reduction and efficiency.

Launch an equity incentive plan to be optimistic about the company's long-term development. On December 7, 2023, the company announced an equity incentive plan. The number of stock options to be granted is 78.285 million shares, accounting for 2.0% of the company's total share capital, and the exercise price of stock options is 4.29 yuan/share, and a three-year assessment target: 2024 to 2026 operating income shall not be less than 11.1 billion yuan, 12.8 billion yuan (+15%), 14 billion yuan (+9%), or net profit to mother of not less than 800 million yuan, 1.2 billion yuan (+50%), and 1.5 billion yuan (+25%), respectively. This equity incentive plan helps to motivate core employees to achieve the goal of rapid growth in the company's performance.

Investment advice: After years of investment and accumulation, Meinian Health has begun to see initial results in fine management, improving quality and improving reputation. At the industry level, the epidemic caused some small medical examination companies to withdraw from the market and the competitive pattern was optimized; demand in the medical examination industry recovered as scheduled after the epidemic and entered a virtuous cycle of relying on quality improvement to drive price increases. We expect the company's net profit to be 5.53/9.13/1,216 billion yuan respectively, up 203.70%/65.07%/33.22% year-on-year, EPS 0.14/0.23/0.31 yuan. The current stock price corresponds to PE of 35/21/16 times, maintaining the “recommended” rating.

Risk warning: Risk of medical examination quality incidents affecting the company's brand, risk of shrinking corporate medical examination benefits due to economic fluctuations, and risk of impairment of goodwill due to insufficient operation of M&A stores.